The Federal Reserve’s preferred inflation gauge shows price pressures easing further

WASHINGTON – A price measure that is closely watched by the Federal Reserve suggests that inflationary pressures in the US economy continue to ease.

Friday’s report from the Commerce Department showed that consumer prices remained stable from April to May, the softest performance in more than four years. Measured against the previous year, prices rose 2.6% last month, slightly less than in April.

Excluding volatile food and energy prices, so-called underlying inflation rose 0.1% from April to May and 2.6% compared to 12 months earlier. Both numbers represented slight improvements over the previous month’s data.

The latest numbers will likely be well-received by Fed policymakers, who said they need to feel confident that inflation is slowing sustainably toward their 2% target before they start cutting interest rates. The Fed’s rate cuts, which most economists think could begin in September, would ultimately lead to lower interest rates for consumers and businesses.

The Federal police increased its referral rate 11 times in 2022 and 2023 in its effort to contain the worst wave of inflation in four decades. Inflation has cooled substantially since its peak in 2022. Still, average prices remain far above where they were before the pandemic, a source of frustration for many Americans and a potential threat to President Joe Biden’s re-election bid. Friday’s data adds to signs that inflationary pressures are continuing to ease, albeit more slowly than last year.

The Fed tends to favor the inflation gauge the government released on Friday — the personal consumption expenditures price index — over the better-known consumer price index. The PCE index tries to take into account changes in the way people shop when inflation rises. It can capture, for example, when consumers switch from expensive national brands to cheaper private labels.

Like the PCE index, the latest consumer price index showed that inflation decreased in May for the second consecutive month. It reinforced hopes that the acceleration in prices that occurred at the beginning of this year has already passed.

The much higher financing costs that followed the Fed’s rate hikes, which drove its key rate to a 23-year high, were expected to tip the country into recession. Instead, the economy continued to growIt is employers continued hiring.

Lately, however, the economy’s momentum appears to have weakened, with higher rates appearing to weaken the ability of some consumers to continue to spend freely. On Thursday, the government reported that the economy expanded at an annual rate of 1.4% from January to March, the slowest quarterly growth since 2022. Consumer spending, the main driver of the economy, grew at a tepid annual rate of 1.5%.